Interim Results

RNS Number : 8364D

Dunedin Income Growth Inv Tst PLC

19 September 2008

 



DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC

HALF YEARLY FINANCIAL REPORT 

FOR THE SIX MONTHS ENDED 31 JULY 2008

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 -11.5% compared to a total return for the FTSE All-Share Index of -
      6.2%. 

•    Interim dividend increased by 7% to 3.75p per share (2007 - 3.50p).  

For further information, please contact:-

Stewart Methven                                            0131 528 4000

David Boyle                                                   0207 463 6000

Aberdeen Asset Managers Limited

 Chairman's Statement

Interim Report for the six months ended 31st July 2008

Review of the Period

The previous financial year was, as many shareholders will know, a difficult period for this Company and I am sorry to have to report that this has continued in the six months ending 31st July 2008. Stockmarkets have been turbulent in this period, with a continued reduction in investor confidence, reflected in a fall in the FTSE All-Share Index of 6.2%. The problems had their origins in the dramatic reduction in the availability of credit - often referred to as the 'credit crunch' - and investor confidence has been further dented by the recent rise in inflation; this has curtailed the scope for further interest rate cuts by central banks and has increased concerns on the outlook for the British domestic economy. 

DIGIT's net asset value, measured with debt priced at market value, fell by 13.8% in capital return terms, from 251.4p to 216.7p, and by 11.5% on a total return basis. The comparable figures when debt is valued at par are decreases of 14.0% and 11.7% respectively. Meanwhile, the share price fell by 16.7% from 230p to 191.5p as the discount to NAV at which the shares trade widened to 8.7% at the period end. 

Our income has held up reasonably well and we are pleased to declare an interim dividend of 3.75p which represents an increase of 7% from last year's 3.5p. 

Economic and Market Background

Throughout the first half of 2008, higher default rates on their mortgage books caused banks to tighten lending criteria and increase LIBOR (the rate at which banks lend to one another) to attempt to protect capital. In the developed economies, central banks acted rapidly to try and improve liquidity within the wholesale market and in the UK the Bank of England introduced the Special Liquidity Scheme. These measures were accompanied by capital raising by the banking sector and initially provided respite to the stockmarket. This, however, proved to be short lived, as the relentless rise in commodity prices fed through to inflation, leading to increased inflationary expectations and a further fall in investor confidence. 

The travails of the banking system have affected economic growth, initially and most notably in the housing market and latterly within the broader economy. There is now evidence of a substantial slow-down affecting both the industrial and service sectors of the British economy.  

The majority of income biased trusts underperformed the FTSE All-Share index at Net Asset Value level during the period and DIGIT is no exception. Gearing in a falling market is partially responsible and the trusts' income bias pushed them away from the lower yielding basic materials sector which benefited from rising commodity prices. Additionally, in DIGIT's case we were affected by poor stock selection in the consumer goods sector. 

Discount and Share Buybacks

The discount to net asset value at which our shares trade widened slightly during the period, from 5.8% to 8.7%. We continue to buy back DIGIT's shares when we are able to do so on terms that provide a tangible benefit to continuing shareholders. During the period we have bought in a total of 801,007 shares. These shares are initially held in Treasury, which allows them to be re-issued at some future date provided DIGIT's share price is trading at a premium to NAV. In the interests of good housekeeping, the level of this Treasury shareholding is reviewed annually and in order to prevent an excessive accumulation of these shares approximately half of these were cancelled following the AGM in May. 

Gearing 

We reduced bank borrowings to £13 million early in the period under review, but following the significant and rapid correction in the stockmarket towards the end of the period we increased the amount drawn down by an additional £2m, taking the total amount drawn to £15m. This, coupled with the 7 7/8% debenture, took gearing at 31st July 2008 to 14.9% with debt valued at market value and 13.6% with debt valued at par. A credit facility with ING expired at the end of July and has been replaced by a new £30 million 364-day revolving credit facility with the Royal Bank of Scotland, on improved terms. 

Allocation of Finance Costs and Management Fees

The Board has decided to change the proportion of finance costs and management fees charged to capital. Previously, 70% of both was charged to capital, and 30% charged to the income account. Having analysed the split of returns over recent years between income and capital and the returns envisaged for the coming years, your Board has now decided that it is more appropriate to allocate a higher proportion of these charges to income. As a result, the allocation of both finance costs and management fees has been changed to 60% to capital and 40% to income with effect from the current financial year; the interim financial statements reflect this change. 

VAT on Management Fees

As mentioned in the Annual Report, the Company is due a refund of VAT as a result of the successful Claverhouse/ Association of Investment Companies case. Matters are making good progress and negotiations with Aberdeen Asset Managers ('Aberdeen') and, in turn, theirs with HMRC are at an advanced stage in relation to the VAT which has been charged since January 2001. The total refund from HMRC for this period is likely to be not less than £1.5 million; of this, 70% will be credited to the Company's capital account (following the prevailing policy on allocating expenses), with the balance being distributed to shareholders. In the opinion of your Board, we have not yet reached the point of 'virtual certainty' which is required before an asset can be recognised in a company's financial statements, but we expect to be able to do so by the time of the annual results. Aberdeen are also pursuing a refund of certain VAT amounts suffered by DIGIT prior to 2001 and dating back to 1990, but this issue is more complex and may take longer to resolve.

Principal Risks and Uncertainties

The major risks associated with the Company are considered to be market price risk (being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movements), gearing risk and, to a lesser extent, liquidity and interest rate risk. The Company has established a framework for managing these risks which is evolving continually as the Company's investment activities change in response to market developments. The Board has provided the Manager with guidelines and limits for the management of market risk, gearing, and financial assets and liabilities. Other key risks identified by the Board that could affect the Company's business are as follows:

• Performance risk: The performance of the portfolio relative to the Benchmark (FTSE All-Share Index) and the underlying stock weightings in the portfolio against their index weightings are monitored closely by the Board.
• Discount volatility: The Company's share price currently trades at a discount to its underlying NAV. The Company operates a share buyback programme which is reviewed on a regular basis.
• Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

Directors' Responsibility Statement

The Directors are responsible for preparing the half yearly financial report, in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge: 

• the condensed set of interim financial statements within the half yearly financial report have been prepared in accordance with the statement 'Half Yearly Financial Reports' issued by the UK Accounting Standards Board; 

• the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by rules 4.2.7R of the Disclosure and Transparency Rules (being an indication 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 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last annual report that could so do.)

The half yearly financial report for the six months to 31 July 2008 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements and the Independent Review Report of the Auditors.

Outlook

Investor confidence remains fragile and the economic outlook is more challenging than it has been for a number of years; the turmoil currently affecting the banking sector on both sides of the Atlantic is likely to undermine confidence still further in the short term.  Oil and other commodity prices, whilst having retreated from their record highs, remain at elevated levels; coupled with a weak housing market and continuing concerns about unemployment, slower economic growth is apparent. This poses risks to the rate of earnings and dividend growth achieved in the market, and inflation fears coupled with a weakening sterling exchange rate have prevented the Bank of England from providing any immediate relief through interest rate cuts. 

The stockmarket has moved to discount some of these risks through pushing valuations of stocks lower, resulting in higher yields becoming available across many companies within the FTSE All-Share Index. While traditionally an expansion in yield reflects concerns as to the sustainability of the dividend, the performance of the stockmarket during the period under review has been polarised and at times indiscriminate between stronger and weaker companies. There will inevitably be risks to dividends on specific stocks, but with dividend cover on the Company's underlying equity portfolio of over 2 times, this provides some comfort that dividend growth will continue, albeit at a more moderate rate.

The Manager expects markets to remain nervous and volatile in the short term but, looking further ahead, share price weakness now presents increased opportunities in soundly financed higher yielding companies to the benefit of the longer term investor.

John Scott

Chairman

  INCOME STATEMENT

	Six months ended 31 July 2008 (unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments held at fair value	-	(53,456)	(53,456)
Currency (losses)/gains	-	(2)	(2)
Income (Note 2)	11,877	-	11,877
Investment management fee	(300)	(451)	(751)
Administrative expenses	(395)	-	(395)
	_________	_________	_________
Net return before finance costs and taxation	11,182	(53,909)	(42,727)
Finance costs	(608)	(912)	(1,520)
	_________	_________	_________
Return on ordinary activities before taxation	10,574	(54,821)	(44,247)
Taxation (Note 3)	(54)	-	(54)
	_________	_________	_________
Return on ordinary activities after taxation	10,520	(54,821)	(44,301)
	_________	_________	_________
Return per Ordinary share (pence)	6.95	(36.22)	(29.27)
(Note 5)	_________	_________	_________

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

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

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

  INCOME STATEMENT

	Six months ended 31 July 2007 (unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments held at fair value	-	255	255
Currency (losses)/gains	-	(3)	(3)
Income (Note 2)	10,611	-	10,611
Investment management fee	(302)	(705)	(1,007)
Administrative expenses	(477)	-	(477)
	_________	_________	_________
Net return before finance costs and taxation	9,832	(453)	9,379
Finance costs	(529)	(1,233)	(1,762)
	_________	_________	_________
Return on ordinary activities before taxation	9,303	(1,686)	7,617
Taxation (Note 3)	(47)	-	(47)
	_________	_________	_________
Return on ordinary activities after taxation	9,256	(1,686)	7,570
	_________	_________	_________
Return per Ordinary share (pence)	6.04	(1.10)	4.94
(Note 5)	_________	_________	_________

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

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

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

  INCOME STATEMENT

	Year ended 31 January 2008 (audited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on investments held at fair value	-	(61,378)	(61,378)
Currency (losses)/gains	-	16	16
Income (Note 2)	18,717	-	18,717
Investment management fee	(597)	(1,393)	(1,990)
Administrative expenses	(791)	-	(791)
	_________	_________	_________
Net return before finance costs and taxation	17,329	(62,755)	(45,426)
Finance costs	(1,081)	(2,520)	(3,601)
	_________	_________	_________
Return on ordinary activities before taxation	16,248	(65,275)	(49,027)
Taxation (Note 3)	(85)	-	(85)
	_________	_________	_________
Return on ordinary activities after taxation	16,163	(65,275)	(49,112)
	_________	_________	_________
Return per Ordinary share (pence)	10.58	(42.74)	(32.16)
(Note 5)
	_________	_________	_________

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

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses have been reflected 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  2008	31 January 2008	31 July  2007
	(unaudited)	(audited)	(unaudited)
	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	370,660	425,578	497,150
	_________	_________	_________
Current assets
Loans and receivables	1,544	5,404	3,608
AAA Money Market funds	3	-	-
Cash and short term deposits	2,690	3,004	2,611
	_________	_________	_________
	4,237	8,408	6,219
	_________	_________	_________
Creditors: amounts falling due within one year
Bank loan (Note 12)	(15,000)	(18,000)	(22,000)
Other creditors	(646)	(852)	(2,284)
	_________	_________	_________
	(15,646)	(18,852)	(24,284)
	_________	_________	_________
Net current liabilities	(11,409)	(10,444)	(18,065)
	_________	_________	_________
Total assets less current liabilities	359,251	415,134	479,085
Creditors: amounts falling due after more than one year
Debenture stock	(28,461)	(28,454)	(28,448)
	_________	_________	_________
Net assets	330,790	386,680	450,637
	_________	_________	_________
Capital and reserves
Called-up share capital	38,419	38,919	38,919
Share premium account	4,543	4,543	4,543
Capital redemption reserve	1,606	1,106	1,106
Capital reserve (Note 7)	263,771	320,332	385,863
Revenue reserve	22,451	21,780	20,206
	_________	_________	_________
Equity shareholders' funds	330,790	386,680	450,637
	_________	_________	_________
Adjusted net asset value per Ordinary share (pence) (Note 8)	219.07	254.74	295.37

  RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2008	38,919	4,543	1,106	320,332	21,780	386,680
Return on ordinary activities after taxation	-	-	-	(54,821)	10,520	(44,301)
Dividends paid (Note 4)	-	-	-	-	(9,849)	(9,849)
Purchase of own shares (Note 10)	-	-	-	(1,740)	-	(1,740)
Cancellation of treasury shares	(500)	-	500	-	-	-
	_______	_______	_______	_________	_________	_________
Balance at 31 July 2008	38,419	4,543	1,606	263,771	22,451	330,790
	_______	_______	_______	_________	_________	_________
Six months ended 31 July 2007 (unaudited)
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2007	38,492	4,543	1,533	391,503	19,996	456,067
Return on ordinary activities after taxation	-	-	-	(1,686)	9,256	7,570
Dividends paid (Note 4)	-	-	-	-	(9,046)	(9,046)
Purchase of own shares (Note 10)	-	-	-	(3,954)	-	(3,954)
Cancellation of treasury shares	(364)	-	364	-	-	-
	_______	_______	_______	_________	_________	_________
Balance at 31 July 2007	38,128	4,543	1,897	385,863	20,206	450,637
	_______	_______	_______	_________	_________	_________
Year ended 31 January 2008 (audited)
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2007	39,412	4,543	613	391,503	19,996	456,067
Return on ordinary activities after taxation	-	-	-	(65,275)	16,163	(49,112)
Dividends paid (Note 4)	-	-	-	-	(14,379)	(14,379)
Purchase of own shares (Note 10)	-	-	-	(5,896)	-	(5,896)
Cancellation of treasury shares	(493)	-	493	-	-	-
	_______	_______	_________	_________	_________	_______
Balance at 31 January 2008	38,919	4,543	1,106	320,332	21,780	386,680
	_______	_______	_________	_________	_________	_______

  CASHFLOW STATEMENT 

	Six months ended	Six months ended	Year  ended
	31 July  2008	31 July  2007	31 January 2008
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net cash inflow from operating activities	10,224	9,285	16,405
Servicing of finance
Interest paid	(1,582)	(1,748)	(3,504)
Taxation
Overseas withholding tax paid	(54)	(47)	(85)
Financial investment
Purchases of investments	(27,490)	(31,022)	(76,795)
Sales of investments	33,182	34,883	86,979
	_________	_________	_________
Net cash inflow from financial investment	5,692	3,861	10,184
Equity dividends paid (Note 4)	(9,849)	(9,046)	(14,379)
	_________	_________	_________
Net cash inflow before use of liquid resources and financing	4,431	2,305	8,621
Net cash (outflow)/inflow from management of liquid resources	(3)	950	950
	_________	_________	_________
Net cash inflow before financing	4,428	3,255	9,571
Financing
(Repayment)/issue of loans	(3,000)	2,000	(2,000)
Purchase of own shares	(1,740)	(3,954)	(5,896)
	_________	_________	_________
(Decrease)/increase in cash	(312)	1,301	1,675
	_________	_________	_________
Reconciliation of net cash flow to movements in net funds
(Decrease)/increase in cash as above	(312)	1,301	1,675
Exchange movements	(2)	(3)	16
	_________	_________	_________
Movement in net funds in the period	(314)	1,298	1,691
Net funds at 1 February 2008	3,004	1,313	1,313
	_________	_________	_________
Net funds at 31 July 2008	2,690	2,611	3,004
	_________	_________	_________

Notes to the Financial Statements

For the six months ended 31 July 2008

 

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 the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (issued in 2003 and revised in December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.

 

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

Dividends are recognised in the period in which they are paid.

 

(c)     Investments

Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement.

 

(d)    Capital reserves

Gains or losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. The capital element of the management fee along with any associated irrecoverable VAT and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.

 

(e)    Allocation of expenses

Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect the investment management fee and relevant finance costs are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively.

 

		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
2.	Income	£'000	£'000	£'000
	Income from investments
	UK listed - franked	11,071	10,202	17,696
	UK listed - unfranked	113	18	135
	Overseas listed - unfranked	407	287	635
		_________	_________	_________
		11,591	10,507	18,466
		_________	_________	_________
	Other income
	Interest from AAA rated money market funds	10	-	50
	Deposit interest	97	70	128
	Income from stocklending	46	34	70
	Underwriting commission	44	-	3
	Other income	89	-	-
		_________	_________	_________
		286	104	251
		_________	_________	_________
	Total income	11,877	10,611	18,717
		_________	_________	_________

 

		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
3.	Taxation	£'000	£'000	£'000
	Withholding tax on income from foreign investments	54	47	85

 

		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
4.	Dividends	£'000	£'000	£'000
	Interim dividend of 3.50p per share	-	-	5,333
	Final dividend of 6.50p (2007 - 5.90p) per share paid on 23 May 2008	9,849	9,046	9,046
		_________	_________	_________
		9,849	9,046	14,379
		_________	_________	_________
	An interim dividend of 3.75p (2007 - 3.50p) will be paid on 7 October 2008 to shareholders on the register on 26 September 2008. The ex dividend date is 24 September 2008.

 

		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
5.	Return per Ordinary share	p	p	p
	Revenue return	6.95	6.04	10.58
	Capital return	(36.22)	(1.10)	(42.74)
		_________	_________	_________
	Total return	(29.27)	4.94	(32.16)
		_________	_________	_________
	The returns per share figures are based on the following:
		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
		£'000	£'000	£'000
	Revenue return	10,520	9,256	16,163
	Capital return	(54,821)	(1,686)	(65,275)
		_________	_________	_________
	Total return	(44,301)	7,570	(49,112)
		_________	_________	_________
	Weighted average number of Ordinary shares in issue	151,360,690	153,233,031	152,717,658

 

6.     Transaction costs 

During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Income Statement. The total costs were as follows:-

 

		Six months ended	Six months ended	Year ended
		31 July 2008	31 July 2007	31 January 2008
		£'000	£'000	£'000
	Purchases	141	197	477
	Sales	36	38	88
		_________	_________	_________
		177	235	565
		_________	_________	_________

 

		Capital reserve	Capital reserve	Total capital
		- realised	- unrealised	reserve
7.	Capital reserve	£'000	£'000	£'000
	Six months ended 31 July 2008
	At 1 February 2008	293,361	26,971	320,332
	Movement in unrealised fair value gains	-	(57,317)	(57,317)
	Gains on realisation of investments at fair value	3,861	-	3,861
	Foreign exchange movements	(2)	-	(2)
	Capital expenses	(1,363)	-	(1,363)
	Purchase of own shares	(1,740)	-	(1,740)
		_________	_________	_________
	At 31 July 2008	294,117	(30,346)	263,771
		_________	_________	_________
	Six months ended 31 July 2007
	At 1 February 2007	278,829	112,674	391,503
	Movement in unrealised fair value gains	-	(15,697)	(15,697)
	Gains on realisation of investments at fair value	15,952	-	15,952
	Foreign exchange movements	(3)	-	(3)
	Capital expenses	(1,938)	-	(1,938)
	Purchase of own shares	(3,954)	-	(3,954)
		_________	_________	_________
	At 31 July 2007	288,886	96,977	385,863
		_________	_________	_________
		Capital reserve	Capital reserve	Total capital
		- realised	- unrealised	reserve
	Year ended 31 January 2008	£'000	£'000	£'000
	At 1 February 2007	278,829	112,674	391,503
	Movement in unrealised fair value gains	-	(85,703)	(85,703)
	Gains on realisation of investments at fair value	24,325	-	24,325
	Foreign exchange movements	16	-	16
	Capital expenses	(3,913)	-	(3,913)
	Purchase of own shares	(5,896)	-	(5,896)
		_________	_________	_________
	At 31 January 2008	293,361	26,971	320,332
		_________	_________	_________

 

The above split in the capital reserve is shown in accordance with provisions of the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies'. The capital reserve is available, so long as it remains positive, for repurchasing shares.

 

The gains and losses on sale of investments are recognised as 'capital reserve - realised'. The changes in fair value on investments which are readily convertible to cash, without accepting adverse terms, are recognised as the 'capital reserve - unrealised'.

 

8.    Net asset value

Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the period end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is given below:

 

		As at	As at	As at
		31 July 2008	31 July 2007	31 January 2008
		£'000	£'000	£'000
	Equity shareholders' funds	£330,790,000	£450,637,000	£386,680,000
	Adjusted net assets	£330,651,000	£450,485,000	£386,534,000
	Number of Ordinary shares in issue at the period end	150,931,187	152,514,194	151,732,194
	Equity shareholders' funds per share	219.17p	295.47p	254.84p
	Less: Unamortised Debenture Stock premium and issue expenses	(0.10p)	(0.09p)	(0.10p)
		_________	_________	_________
	Adjusted net asset value per share	219.07p	295.38p	254.74p

 

9.     Commitments, contingencies and post Balance Sheet events

On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT. HMRC has announced its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims were made in relation to the Company. Matters are making good progress and negotiations with Aberdeen Asset Managers ('Aberdeen') and, in turn, theirs with HMRC , are at an advanced stage in relation to the VAT which has been charged since January 2001. The total refund from HMRC for this period is likely to be not less than £1.5 million; of this 70% will be credited to the Company's capital account (following the prevailing policy on allocating expenses), with the balance being distributed to shareholders. In the opinion of your Board, we have not yet reached the point of 'virtual certainty' which is required before an asset can be recognised in a company's financial statements, but we expect to be able to do so at the time of the annual results. Aberdeen are also pursuing a refund of certain VAT amounts suffered by the Company prior to 2001 and dating back to 1990 but this issue is more complex and may take longer to resolve.

 

10.    Called-up share capital

During the six months ended 31 July 2008 the Company repurchased 801,007 Ordinary shares (31 July 2007 - 1,455,440, year ended 31 January 2008 - 2,237,440) at a cost of £1,740,000 (31 July 2007 - £3,953,000, year ended 31 January 2008 - £5,896,000) including expenses. All of these shares were placed in treasury.

 

11.    Stock lending

As at 31 July 2008 the Company had lent stock to the market value of £63,122,000 ( 31 July 2007 - £15,068,000, 31 January 2008 - £46,791,000). All stocks lent under these arrangements are fully secured against collateral provided by the various counter-parties involved. The value of the collateral held at 31 July 2008 was £66,278,000 (31 July 2007 - £15,821,000, 31 January 2008 - £51,917,000) which comprised overseas government stocks and corporate bonds.

 

12.    Borrowings

        During the six months ended 31 July 2008 the amount drawn on a loan facility provided by ING Bank N.V. decreased from £18,000,000 to £15,000,000. This facility expired on 31 July 2008 and has been replaced by a new £30 million 364-day revolving credit facility from the Royal Bank of Scotland.

 

13.    The financial information for the six months ended 31 July 2008 and 31 July 2007 comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 January 2008 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and did not contain a Statement under either Section 237(2) or 237(3) of the Companies Act 1985.

 

14.    This Half Yearly Report was approved by the Board on 18 September 2008.

 

15.    The half yearly financial report is available on the Company’s website, www.dunedinincomegrowth.co.uk, and the Interim Report will be posted to shareholders end September 2008 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

 

 

 

 

END

 

 

IR SFLSUUSASESU