Interim Results

Edinburgh New Income Trust plc 18 January 2008 News Release 18 January 2008 EDINBURGH NEW INCOME TRUST PLC HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS TO 30 NOVEMBER 2007 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 15 February 2008. • The Board intends to pay a third interim dividend of 1.3p and it has already indicated that, in the absence of unforeseen circumstances, it intends to pay a fourth interim dividend of 3.1p, making a total net dividend of 7.0p for the year to 31 May 2008, an increase of 6.1%. • NAV per ordinary share was 125.2p at 30 November 2007. For further information, please contact: Stewart Methven, Investment Manager, Edinburgh Fund Managers plc Tel: 0131 313 1000 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 2007 The UK equity market endured a volatile and difficult period in the first half of the Trust's year. Against this background, the Trust's total assets fell by 11.1% in capital terms for the six months to 30 November 2007. The net asset value per share (NAV) fell by 18.8% to 125.2p in capital terms and by 16.2% in total return terms. By way of a comparison, the FTSE All-Share Index fell by 3.1% on a total return basis. The share price fell by 19.3% to 111.8p, which reflected a slight widening of the discount to net asset value at which the shares currently trade. Dividends A first interim dividend of 1.3p was declared in September 2007 and paid in October 2007. The Board is pleased to announce a second interim dividend of 1.3p which will be paid on 15 February 2008 to shareholders on the register on 25 January 2008. The Board intends to pay a third interim dividend of 1.3p and it has already indicated that, in the absence of unforeseen circumstances, it intends to pay a fourth interim dividend of 3.1p, making a total net dividend of 7.0p for the year to 31 May 2008, an increase of 6.1%. Performance and Market Review The period started with the market initially shrugging off the interest rate and CPI increases last May, although this complacency proved to be short lived and was soon replaced by a sharp reduction in investor appetite for risk, with wider fears of a credit crunch triggered primarily by the well-publicised problems in sub-prime lending in the USA. As sub-prime default rates increased, the banking sector tightened lending criteria and a consequence was higher rates in the important inter-bank lending market. The highest profile casualty of the higher cost and reduced availability of credit was Northern Rock, but all financial stocks were hit by adverse sentiment. The frequency of merger and acquisition activity slowed as a result of funding difficulties. This proved a difficult environment for the higher yielding companies within the portfolio, with smaller stocks in particular suffering a significant correction. For the six months to 30 November 2007, total assets experienced a negative total return of 9.1% as compared with a negative return of 3.1% in the FTSE All-Share Index. Portfolio positions in higher yielding smaller companies and the underweight position in resource stocks, where yields on offer don't match the income requirements of the fund were the principal reason for the shortfall compared to the benchmark. With risk averse investors focussed on those companies with near term earnings visibility, growth stocks performed better than value stocks, the area of the market where higher yielding stocks are found. The effect of gearing and the charge against capital of management costs and accruals on the zero dividend preference shares led to the total return to ordinary shareholders being a negative 16.2%. The share price of the zero dividend preference shares (ZDPs) rose to 117.3p, representing a premium of 1.3% over their underlying net asset value of 115.7p. The capital cover of the ZDPs fell from 2.3 times at the end of May 2007 to 2.0 times at the end of November 2007. Shareholders will be aware that the Trust has significant capital gearing through its zero dividend preference shares, and while this is to our benefit when share prices rise, the effect of gearing will exacerbate the downside in falling markets. At the end of November, equity investments totalled £39.9 million, which resulted in a ratio of total equity investments to ordinary shareholders funds of 155%. Total potential gearing, which compares total assets to ordinary shareholders funds, was 168%. The Board has controls in place which seek to ensure that effective gearing is limited to 190%. VAT on Management Fees In June 2004, the Association of Investment Companies (AIC) and JPM Claverhouse Investment Trust plc launched a case against HM Revenue and Customs (HMRC) in which they claimed that management fees charged to UK investment trusts should be exempt from VAT. On 28 June 2007, the European Court of Justice found in favour of the AIC/Claverhouse case in respect of the specific questions referred to it by the UK VAT tribunal. HMRC accepted this judgement in November. Your Company has taken the appropriate steps to reclaim the relevant VAT that has been paid on management fees. Outlook In the Annual Report last June, I expressed a measure of caution, but there is no doubt that market sentiment changed rapidly over the autumn, and there is still a high degree of uncertainty surrounding the full extent of sub-prime losses and the degree to which these will filter through to slower economic activity. Inflation, too, remains a concern and the Manager sees the continuing potential for further weakness in Government and consumer expenditure as we move into 2008, with signs that the housing market could begin to slow rapidly. Against these, we can expect Bank of England action on interest rates to ameliorate the position. Share valuations overall remain reasonable as the market has already factored in earnings downgrades for more cyclical sectors, and sharp share price corrections have already been seen in potentially more vulnerable stocks. Thus, although the immediate outlook is for more stockmarket volatility, the Manager still remains reasonably sanguine looking further ahead. Events during the period At the Company's AGM on 25 September 2007 all resolutions were passed. Ronnie Hanna resigned from the Board on 16 November 2007, owing to a conflict of interest through his position as chairman of Glasgow Income Trust plc, whose management contract had recently been assumed by Aberdeen Asset Managers. The Board wishes to put on record its appreciation of his contribution to the Company, and before that to Edinburgh High Income Trust plc. In particular, his contribution as chairman of the audit committee was greatly appreciated. On 16 January 2008 the investment management agreement was transferred under a novation agreement from Edinburgh Fund Managers plc, a wholly owned subsidiary of Aberdeen Asset Management PLC to Aberdeen Asset Managers Limited, also a wholly owned subsidiary of Aberdeen Asset Management PLC. The terms of the management agreement, including the management fee and notice period, remain unchanged. 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 has in place controls which may require sales of equity investments in declining markets, in order to prevent the ratio of total equity investments to ordinary shareholders funds exceeding 190%. 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. • Income/dividend risk: The investment objective of the Company, to provide ordinary shareholders with an attractive level of income, means that the investment managers have 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. 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 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. 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 18 January 2008 INCOME STATEMENT Six months ended Six months ended 30 November 2007 30 November 2006 (unaudited) (unaudited) Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains on held-at-fair-value investments - (5,250) (5,250) - 3,286 3,286 Income 969 - 969 862 - 862 Investment management fee (75) (75) (150) (83) (83) (166) Administration expenses (105) - (105) (64) - (64) _______ _______ ______ _______ _______ _______ Net return before finance costs and taxation 789 (5,325) (4,536) 715 3,203 3,918 Finance costs of ZDP Shareholders - (506) (506) - (477) (477) _______ _______ ______ _______ _______ _______ Net return on ordinary activities before and 789 (5,831) (5,042) 715 2,726 3,441 after taxation _______ _______ ______ _______ _______ _______ Return per Ordinary share (pence) 3.84 (28.42) (24.58) 3.48 13.29 16.77 _______ _______ ______ _______ _______ _______ 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. INCOME STATEMENT Year ended 31 May 2007 (audited) Revenue Capital Total £'000 £'000 £'000 Gains on held-at-fair-value investments - 7,651 7,651 Income 1,862 - 1,862 Investment management fee (176) (176) (352) Administration expenses (154) - (154) _________ _________ _________ Net return before finance costs and taxation 1,532 7,475 9,007 Finance costs of ZDP Shareholders - (964) (964) _________ _________ _________ Net return on ordinary activities before and after 1,532 6,511 8,043 taxation _________ _________ _________ Return per Ordinary share (pence) 7.47 31.73 39.20 _________ _________ _________ 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 30 31 November November May 2007 2006 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Non-current assets Investments at fair value through profit or loss 39,947 42,372 44,413 _________ _________ _________ Current assets Debtors and prepayments 496 138 264 AAA Money Market funds 2,715 - 3,750 Cash and short term deposits 736 1,667 364 _________ _________ _________ 3,947 1,805 4,378 _________ _________ _________ Creditors: amounts falling due within one year (653) (119) (132) _________ _________ _________ Net current assets 3,294 1,686 4,246 _________ _________ _________ Total assets less current liabilities 43,241 44,058 48,659 Creditors: amounts falling due after more than one year Zero Dividend Preference shares (17,544) (16,551) (17,038) _________ _________ _________ Net assets 25,697 27,507 31,621 _________ _________ _________ Capital and reserves Called-up share capital 205 205 205 Special reserve 20,035 20,035 20,035 Share premium account - - - Capital reserve - realised 1,217 893 1,979 Capital reserve - unrealised 3,323 5,689 8,392 Revenue reserve 917 685 1,010 _________ _________ _________ Equity Shareholders' funds 25,697 27,507 31,621 _________ _________ _________ Net asset value per Ordinary share (pence) 125.23 134.06 154.11 _________ _________ _________ Reconciliation of Movements in Shareholders' Funds Six months ended 30 November 2007 (unaudited) Capital Capital Share Special reserve reserve Revenue capital reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2007 205 20,035 1,979 8,392 1,010 31,621 Return on ordinary activities after - - (762) (5,069) 789 (5,042) taxation Dividends paid - - - - (882) (882) ______ _______ ______ _______ _______ _______ Balance at 30 November 2007 205 20,035 1,217 3,323 917 25,697 ______ _______ ______ _______ _______ _______ Six months ended 30 November 2006 (unaudited) Capital Capital Share Special reserve reserve Revenue capital reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2006 205 20,035 648 3,208 832 24,928 Return on ordinary activities after - - 245 2,481 715 3,441 taxation Dividends paid - - - - (862) (862) ______ _______ ______ _______ _______ _______ Balance at 30 November 2006 205 20,035 893 5,689 685 27,507 ______ _______ ______ _______ _______ _______ For the year ended 31 May 2007 (audited) Capital Capital Share Special reserve reserve Revenue capital reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2006 205 20,035 648 3,208 832 24,928 Expenses of share issue - - 4 - - 4 Return on ordinary activities after - - 1,327 5,184 1,532 8,043 taxation Dividends paid - - - - (1,354) (1,354) ______ _______ ______ _______ _______ _______ Balance at 31 May 2007 205 20,035 1,979 8,392 1,010 31,621 ______ _______ ______ _______ _______ _______ CASHFLOW STATEMENT Six months Six months Year ended ended ended 30 November 30 November 31 May 2007 2006 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net total return before finance costs and taxation (4,536) 3,918 9,007 Adjustment for: Losses/(gains) on investments at fair value through profit or 5,250 (3,286) (7,651) loss Decrease/(increase) in accrued income 108 72 (74) Increase in other debtors (4) (15) (5) Decrease in other creditors (27) (24) (11) _________ _________ _________ Net cash inflow from operating activities 791 665 1,266 Net cash (outflow)/inflow from financial investment (572) (668) 1,670 Equity dividends paid (882) (862) (1,354) _________ _________ _________ Net cash (outflow)/inflow before financing (663) (865) 1,582 Net cash inflow/(outflow) from management of liquid resources 1,035 - (3,750) _________ _________ _________ Increase/(decrease) in cash 372 (865) (2,168) _________ _________ _________ Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash as above 372 (865) (2,168) Net change in liquid resources (1,035) - 3,750 Net changes in debt due in more than one year (506) (477) (964) _________ _________ _________ Movement in net debt (1,169) (1,342) 618 Opening net debt (12,924) (13,542) (13,542) _________ _________ _________ Closing net debt (14,093) (14,884) (12,924) _________ _________ _________ Represented by: Cash at bank 736 1,667 364 AAA Money Market funds 2,715 - 3,750 Debt due after more than one year (17,544) (16,551) (17,038) _________ _________ _________ Net debt (14,093) (14,884) (12,924) _________ _________ _________ Notes: 1. Accounting policies (a) Basis of accounting The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards with pronouncements on interim reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice for 'Financial Statements of Investments Trust Companies'' (December 2005). They have also been prepared on the assumption that the 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 Dividends are recognised in the period in which they are paid. 2. Dividends A first interim dividend of 1.3p per Ordinary share was paid on 26 October 2007 to Shareholders on the register on 5 October 2007. The ex-dividend date was 3 October 2007. The directors have declared a second interim dividend of 1.3p per Ordinary share which will be paid on 15 February 2008 to Shareholders on the register on 25 January 2008. The ex-dividend date is 23 January 2008. 3. The financial information in this report comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 May 2007 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 under Section 235 of the Companies Act 1985. 4. The half yearly financial report has not been reviewed by the Company's auditors. 5. The half yearly financial report is available on the Company's website, www.edinburghnewincome.co.uk and the interim report will be posted to shareholders in February 2008 and copies will be available from the Manager. For Edinburgh New Income Trust plc Edinburgh Fund Managers plc, SECRETARY This information is provided by RNS The company news service from the London Stock Exchange

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