Half Yearly Results

RNS Number : 7618Z

Edinburgh New Income Trust plc

20 January 2011

 



News Release

20 January 2011

EDINBURGH NEW INCOME TRUST PLC

HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS TO 30 NOVEMBER 2010

Edinburgh New Income Trust plc's investment objective is to provide ordinary shareholders with an attractive level of income, together with the potential for capital and income growth and its zero dividend preference shareholders with a pre-determined capital entitlement on 31 May 2011.

•        Second interim dividend of 1.3p per ordinary share payable on 18 February 2011.

For further information, please contact:

Charles Luke, Investment Manager, Aberdeen Asset Management PLC           Tel: [phone]

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.

EDINBURGH NEW INCOME TRUST

INTERIM BOARD REPORT FOR THE SIX MONTHS TO 30 NOVEMBER 2010

Equity markets continued to recover during the six months to 30 November 2010.  Our net asset value per ordinary share rose by 12.4% to 60.0p. On a total return basis the net asset value rose by 19.2% compared to an increase in the FTSE All-Share Index of 8.6%.  The share price of the ordinary shares rose by 15.7% to 59.0p and the share price of the ZDPs rose to 138.3p compared with an underlying net asset value of 137.8p.

Dividends

A first interim dividend of 1.3p (2009 - 1.3p) was declared in October 2010 and was paid the following month. The Board has declared a second interim dividend of 1.3p which will be paid on 18 February 2011. The Board's aim remains to maintain the total dividend at last year's level of 6.0p by drawing on revenue reserves as necessary. 

Portfolio Review

Across Europe, governments have begun to introduce austerity measures to tackle fiscal deficits. These have yet to impact the positive trends we are seeing in equity markets, perhaps because aggressive monetary accommodation remains in place worldwide.  In the UK, the general economy has recovered more strongly than most commentators expected.

The strongest areas of performance, which were helped by an improving economic outlook, included the Trust's exposure to Oil Equipment Services and Industrial Engineering.  We have continued to focus the equity portfolio on good quality companies with either attractive overseas earnings where the recovery remains stronger, or a value-focus for those companies operating primarily in the UK. This has resulted in the equity part of the portfolio outperforming the FTSE All-Share Index over the 6 month period by 4.1%. At the total assets level, we keep gearing under control by maintaining a cash buffer together with a corporate bond portfolio to generate additional income (see investment portfolio for further detail on page 4).

Gearing

At 30 November 2010 equity investments totalled £23.0 million and the ratio of total equity investments to ordinary shareholders funds was 187%.

The capital cover of the ZDPs, which compares gross assets (excluding revenue reserves) to the final repayment entitlement of the ZDPs increased from 1.41 times at the end of May 2010 to 1.51 times at the end of November 2010.

Outlook

As the economic recovery becomes more fully established, the bias in monetary policy will inevitably shift towards tightening. An early increase in interest rates seems unlikely given the fragile state of consumers' balance sheets.  Operationally, the holdings are broadly performing well and meetings with management have generally been positive. In addition, although the market has recovered strongly, valuations do not look stretched and corporate balance sheets are generally in good shape.  The portfolio retains exposure to high-quality companies, with strong competitive positions and healthy financial characteristics and we continue to believe that these attributes are the best way to ensure good performance.

Winding-up of the Company

The Board is conscious of the winding-up provisions within the Company's Articles and the approaching redemption date of the ZDPs on 31 May 2011. As this date approaches, the Directors are considering options for those shareholders who may wish to continue their investment beyond that date. The Directors believe that the Company has adequate resources to continue in operational existence until 31 May 2011. However, as there are less than 5 months to the winding-up date provided in the Articles, the accounts have been prepared on a break-up basis. More information is provided within the Notes to the Accounts.

Events During the Period

At the Company's AGM on 6 October 2010 all resolutions were passed.

Risks and Uncertainties

The Board has adopted a matrix of the key risks that affect its business. The principal risks are as follows:

·     Stockmarket risk: The Company is exposed to the effect of variations in share prices due to the nature of its business.  A fall in the value of its portfolio will have an adverse effect on shareholders' funds, which will be exacerbated by the gearing effect of the zero dividend preference shares. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth so that the gearing effect will multiply the gains for ordinary shareholders. However, the Board has to have regard to the damage which will result from a significant fall in share prices and closely monitors the level of gearing. An aim is to ensure that the future capital entitlement of the zero dividend preference shares can always be met.

·     Capital structure risk: The Company's capital structure and its accounting policies mean that the capital accrual on the zero dividend preference shares and 50% of the management fee are charged to the capital account rather than the revenue account. A consequence is that the value of the portfolio must rise, or these charges will result in a drop in net asset value for ordinary shareholders.

·     Income/dividend risk: The investment objective of the Company, to provide ordinary shareholders with an attractive level of income, means that the Manager has to achieve an above average dividend yield on the investments in the portfolio. A consequence is that the performance of the equity portfolio may not always match that of the stockmarket as a whole, with a consequential impact on shareholder returns. The Board's aim is to maximise returns consistent with achieving its dividend requirements.

·     Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158-1159 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations such as the UKLA listing rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Manager could also lead to reputational damage or loss. The Directors have adopted a robust framework of control which is designed to monitor all key risks facing the Company, and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible.

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 financial statements within the half yearly financial report has been prepared in accordance with Accounting Standards Board's Statement "Half Yearly Financial Reports"; and

·     the Interim Board Report includes a fair view of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

For Edinburgh New Income Trust plc

David Ritchie

Chairman

INCOME STATEMENT

		Six months ended			Six months ended
		30 November 2010			30 November 2009
		(unaudited)			(unaudited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value		-	2,248	2,248	-	3,334	3,334
Income	2	608	-	608	583	-	583
Investment management fee		(53)	(53)	(106)	(49)	(49)	(98)
Administration expenses		(85)	-	(85)	(86)	-	(86)
		_______	______	______	_______	______	______
Net return before finance costs and taxation		470	2,195	2,665	448	3,285	3,733
Finance costs of ZDP shareholders		-	(601)	(601)	-	(568)	(568)
		_______	______	______	_______	______	______
Net return on ordinary activities before and after taxation		470	1,594	2,064	448	2,717	3,165
		_______	______	______	_______	______	______
Return per Ordinary share (pence)	3	2.29	7.77	10.06	2.18	13.24	15.42
		_______	______	______	_______	______	______

		Year ended
		31 May 2010
		(audited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Gains on investments held at fair value		-	3,817	3,817
Income	2	1,264	-	1,264
Investment management fee		(100)	(100)	(200)
Administration expenses		(166)	-	(166)
		_______	_______	_______
Net return before finance costs and taxation		998	3,717	4,715
Finance costs of ZDP shareholders		-	(1,149)	(1,149)
		_______	_______	_______
Net return on ordinary activities before and after taxation		998	2,568	3,566
		_______	_______	_______
Return per Ordinary share (pence)	3	4.86	12.52	17.38
		_______	_______	_______

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

No Statement of Total Recognised Gains and Losses has 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.

No operations were acquired or discontinued in the period.

BALANCE SHEET

		As at	As at	As at
		30 November 2010	30 November 2009	31 May 2010
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		-	27,951	-
Current assets
Investments at fair value through profit or loss	1	28,176	-	27,918
Debtors and prepayments		360	457	330
AAA Money Market funds		-	800	-
Cash and short term deposits		4,759	1,671	3,157
		_________	_________	_________
		33,295	2,928	31,405
		_________	_________	_________
Creditors: amounts falling due within one year		(20,982)	(85)	(20,458)
		_________	_________	_________
Net current assets		12,313	2,843	10,947
		_________	_________	_________
Total assets less current liabilities		12,313	30,794	10,947
Creditors: amounts falling due after more than one year
Zero Dividend Preference shares		-	(19,715)	-
		_________	_________	_________
Net assets		12,313	11,079	10,947
		_________	_________	_________
Capital and reserves
Called-up share capital		205	205	205
Special reserve		20,035	20,035	20,035
Capital reserve		(8,633)	(10,078)	(10,227)
Revenue reserve		706	917	934
		_________	_________	_________
Equity shareholders' funds		12,313	11,079	10,947
		_________	_________	_________
Net asset value per Ordinary share (pence)	4	60.01	53.99	53.34
		_________	_________	_________

Reconciliation of Movements in Shareholders' Funds

Six months ended 30 November 2010 (unaudited)
		Share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2010		205	20,035	(10,227)	934	10,947
Return on ordinary activities after taxation		-	-	1,594	470	2,064
Dividends paid	5	-	-	-	(698)	(698)
		________	________	________	_________	________
Balance at 30 November 2010		205	20,035	(8,633)	706	12,313
		________	________	________	_________	________
Six months ended 30 November 2009 (unaudited)
		Share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2009		205	20,035	(12,795)	1,167	8,612
Return on ordinary activities after taxation		-	-	2,717	448	3,165
Dividends paid	5	-	-	-	(698)	(698)
		________	________	________	_________	________
Balance at 30 November 2009		205	20,035	(10,078)	917	11,079
		________	________	________	_________	________
Year ended 31 May 2010 (audited)
		Share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2009		205	20,035	(12,795)	1,167	8,612
Return on ordinary activities after taxation		-	-	2,568	998	3,566
Dividends paid	5	-	-	-	(1,231)	(1,231)
		________	________	________	_________	________
Balance at 31 May 2010		205	20,035	(10,227)	934	10,947
		________	________	________	_________	________

CASHFLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 November 2010	30 November 2009	31 May 2010
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net total return before finance costs and taxation	2,665	3,733	4,715
Adjustment for:
Gains on investments at fair value through profit or loss	(2,248)	(3,334)	(3,817)
Effective yield adjustment	122	39	-
(Increase)/decrease in accrued income	(94)	(62)	17
(Increase)/decrease in other debtors	(1)	(2)	95
(Decrease)/increase in other creditors	(13)	(8)	4
	_________	_________	_________
Net cash inflow from operating activities	431	366	1,014
Net cash inflow/(outflow) from financial investment	1,868	(5,342)	(4,785)
Equity dividends paid	(698)	(698)	(1,231)
Overseas tax paid	-	(14)	-
	_________	_________	_________
Net cash inflow/(outflow) before financing	1,601	(5,688)	(5,002)
Net cash inflow from management of liquid resources	-	1,700	1,250
	_________	_________	_________
Increase/(decrease) in cash	1,601	(3,988)	(3,752)
	_________	_________	_________
Reconciliation of net cash flow to movement in net funds
Increase/(decrease) in cash as above	1,601	(3,988)	(3,752)
Net change in liquid resources	-	(1,700)	(1,250)
Net changes in debt due within one year	(601)	(568)	(1,149)
	_________	_________	_________
Movement in net debt	1,000	(6,256)	(6,151)
Opening net debt	(17,139)	(10,988)	(10,988)
	_________	_________	_________
Closing net debt	(16,139)	(17,244)	(17,139)
	_________	_________	_________
Represented by:
Cash at bank	4,759	1,671	3,157
AAA Money Market funds	-	800	-
Debt due within one year	(20,898)	(19,715)	(20,296)
	_________	_________	_________
Net debt	(16,139)	(17,244)	(17,139)
	_________	_________	_________

Notes:

1.	Accounting policies
	(a)	Basis of accounting
		The accounts have been prepared in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.  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 break-up basis. Accordingly, the investments have been included as current assets and the Zero Dividend Preference shares as current liabilities since there is less than one year until redemption.
		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 half-yearly financial statements 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 approved by shareholders.

		Six months ended	Six months ended	Year ended
		30 November 2010	30 November 2009	31 May 2010
2.	Income	£'000	£'000	£'000
	Income from investments
	UK dividend income	415	366	834
	Overseas dividends	6	9	25
	Stock dividend	-	7	14
	PID (Property Income Distributions) dividend	11	7	18
	Fixed interest	156	167	337
		____________	____________	____________
		588	556	1,228
		____________	____________	____________
	Other income
	AAA Money Market funds interest	-	2	3
	Deposit interest	14	6	13
	Certificates of deposit interest	-	9	9
	Treasury Bill interest	-	2	2
	Underwriting commission	6	8	9
		____________	____________	____________
		20	27	36
		____________	____________	____________
	Total income	608	583	1,264
		____________	____________	____________

		Six months ended	Six months ended	Year ended
		30 November 2010	30 November 2009	31 May 2010
3.	Return per Ordinary share	p	p	p
	Revenue return	2.29	2.18	4.86
	Capital return	7.77	13.24	12.52
		____________	____________	____________
	Total return	10.06	15.42	17.38
		____________	____________	____________
	The figures above are based on the following attributable assets:
		Six months ended	Six months ended	Year ended
		30 November 2010	30 November 2009	31 May 2010
		£'000	£'000	£'000
	Revenue return	470	448	998
	Capital return	1,594	2,717	2,568
		____________	____________	____________
	Total return	2,064	3,165	3,566
		____________	____________	____________
	Weighted average number of Ordinary shares in issue	20,519,056	20,519,056	20,519,056
		____________	____________	____________

		As at	As at	As at
4.	Net asset value per share	30 November 2010	30 November 2009	31 May 2010
	Ordinary
	Attributable net assets (£'000)	12,313	11,079	10,947
	Number of Ordinary shares in issue	20,519,056	20,519,056	20,519,056
	Net asset value per share (p)	60.01	53.99	53.35
		____________	____________	____________
	Zero Dividend Preference
	Attributable net assets (£'000)	20,898	19,715	20,296
	Number of ZDP shares in issue	15,166,618	15,166,618	15,166,618
	Net asset value per share (p)	137.79	129.99	133.82
		____________	____________	____________

5.	Dividends
	Ordinary dividends on equity shares deducted from reserves are analysed below:
		Six months ended	Six months ended	Year ended
		30 November 2010	30 November 2009	31 May 2010
	Second interim dividend 2010 - 1.3p (2009 - 1.3p)	-	-	267
	Third interim dividend 2010 - 1.3p (2009 - 1.3p)	-	-	266
	Fourth interim dividend 2010 - 2.1p (2009 - 2.1p)	431	431	431
	First interim dividend 2011 - 1.3p (2010 - 1.3p)	267	267	267
		____________	____________	____________
		698	698	1,231
		____________	____________	____________
	The Company has declared a second interim dividend in respect of the year ending 31 May 2011 of 1.3p net (2010 - 1.3p) per Ordinary share which will be paid on 18 February 2011 to Ordinary shareholders on the register on 28 January 2011. This dividend has not been included as a liability in these financial statements.

6.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 30 November 2010 includes gains of £3,355,000 (30 November 2009 - £962,000; 31 May 2010 - £1,441,000) which relate to the revaluation of investments held at the reporting date.

7.	Transaction costs
	During the six months ended 30 November 2010 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 gains on investments in the Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 November 2010	30 November 2009	31 May 2010
		£'000	£'000	£'000
	Purchases	15	21	27
	Sales	2	1	2
		____________	____________	____________
		17	22	29
		____________	____________	____________

8.	Contingent assets On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT.  HMRC has accepted the ruling and acknowledged its liability to pay claims in respect of VAT borne by investment companies.
	The Company has received a refund £108,000 representing all VAT charged on investment management fees for the period 1 June 2005 to 31 August 2007; this was recognised in the financial statements for the year end 31 May 2009 and has been allocated to revenue and capital respectively, in accordance with the accounting policy of the Company for the periods in which the VAT was charged. HMRC confirmation on the amount of interest receivable in respect of claims settled has still to be received.  Therefore, the Company has taken no account in these financial statements of any such amount payable.
	The Company has not been charged VAT on its investment management fees from 1 September 2007.
9.	In accordance with the Articles of Association, the Directors are obliged to convene a general meeting on 31 May 2011 at which a special resolution will be proposed to wind up the Company on a voluntary basis when the Zero Dividend Preference shares fall due for redemption. Accordingly the accounts have been prepared on a break-up basis. The estimated maximum break-up costs include liquidation costs of £150,000 and portfolio realisation costs of £12,000 which will be charged in the Company's accounts at 31 May 2011.
10.	The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006.  The financial information for the year ended 31 May 2010 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2),(3) or (4) of the Companies Act 2006.
11.	The half-yearly financial report was approved by the Board on 19 January 2011.
12.	The half-yearly report will be posted to shareholders in February 2011 and copies will be available from the Manager and on the Company's website, www.edinburghnewincome.co.uk.

For Edinburgh New Income Trust plc

Aberdeen Asset Management Limited, SECRETARY

 

END

 

 

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