Interim Results

RNS Number : 7877I

Investment Company PLC

24 November 2008

 



The Investment Company plc

Unaudited Interim Results

For the six month period ended 30 September 2008

Chairman's Statement

The results for the six months to 30 September 2008 are poor particularly by comparison with last year when the Revenue account benefited from several exceptional receipts of arrears and deemed distributions from redemptions above par. The dealing company subsidiary has also had a miserable result with the obligation to provide for falls in the price of shares which we consider greatly to exceed the decline in the underlying value of the companies themselves.

The net asset value of the ordinary shares, which as I have pointed out in recent statements are quite highly geared by the assets attributable to the loan notes and participating preference shares, fell from 217.49p to 150.57p.

In such circumstances therefore it is only prudent to reduce the interim dividend payment on the ordinary shares from 4p last year to 2p this time. The dividend will be paid on 9 January 2009 to shareholders on the register on 12 December 2008 and the shares will be quoted ex dividend on 10 December 2008.  

The participating preference shares enjoy a basic six monthly dividend of 3.5p on 1st April and 1st October and the participating element is added to the October payment. It will not be known to what extent the participating dividend will be reduced next October until any second interim or final dividend has been announced or approved when the full year's results to 31 March 2009 are audited and published.  

However in an endeavour to continue to reduce costs your Board has accepted Mr Cockburn's offer to reduce his Managing Director's salary by 50% from 1 September 2008, a saving to the Company of £25,000 plus National Insurance per annum.

As recently as 7 August this year when I wrote to you with the audited accounts at 31 March 2008 I commented that financial sector shares, such as banks, had continued to be volatile and subject to rumour, bear raids and rights issues.

In the 10 weeks since, the turmoil in the market has intensified. Lloyds Bank, which were as high as 329p on that day have now seen 115p a further fall of 65% despite having already slumped 44% from 585p in October 2007. Of course this reflects the quite dreadful losses, which have now been provided for, incurred by banks where the riskiness of some of their trading activities was clearly never apparent to the Directors, Advisors or Regulators. Royal Bank of Scotland has if anything fared even worse, falling from 570p to trade at 40.2p a year later, despite a rights issue raising thousands of millions of pounds from shareholders at 200p in June on the way down.

Our interest is focussed on the preference shares of National Westminster Bank, a subsidiary of the Royal Bank, and those of Halifax Bank of Scotland which seems likely to become a subsidiary of Lloyds TSB in a few weeks time. These shares, accustomed to stand on yields of about 6%, have fallen to prices where the yield is now double that and about 4 times the rate of interest those banks are currently paying their retail depositors.

We now consider, after reviewing the Lloyds TSB HBoS Scheme of Arrangement Merger document and having studied the terms carefully under which HM Treasury is injecting billions into the Royal Bank both in new preference shares and by underwriting ordinary shares at prices now well above levels at which existing ordinary shares are available in the stock market, that on a two to four year view there may be very attractive investment opportunities in these banks' quoted preference stocks. We have a strong cash position with which to take advantage of this situation.

Of course we will have to be patient but we doubt whether dividends on these holdings (clearly not prevented under the terms of HM Treasury's investments which do prevent ordinary dividends) will be passed and ultimately we believe we shall enjoy significant capital gains.

We were rewarded for our bravery in Equitable Life 8% bonds (and years ago in the British Leyland Motor Corporation loan stocks which had also benefited from an injection of taxpayers money into the equity thus shoring up the value of the prior charge securities); so we shall follow Warren Buffet's maxim to 'be greedy when others are fearful' and there must have been few such opportunities to compare with today's.

Sir David Thomson Bt.  Chairman 24 November 2008

Registered office: 3rd Floor, Salisbury House London Wall London EC2M 5QS

Consolidated Income Statement 

For six months ended 30 September 2008

	Notes	6 months to 30 September 2008 (unaudited)			6 months to 30 September 2007 (unaudited, as restated)			Year to 31 March 2008 (audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
		£	£	£	£	£	£	£	£	£
Total income		367,423	-	367,423	517,728	-	517,728	1,043,605	-	1,043,605
Administrative expenses		(194,864)	-	(194,864)	(190,886)	-	(190,886)	(375,008)	-	(375,008)
Loan note interest		(91,425)	-	(91,425)	(91,425)	-	(91,425)	(182,850)	-	(182,850)
Other finance costs		(174,818)	-	(174,818)	(174,818)	-	(174,818)	(349,636)	-	(349,636)
Realised gains on investments		-	24,443	24,443	-	440,307	440,307	-	728,554	728,554
Impairment provisions		-	(729,368)	(729,368)	-	(207,911)	(207,911)	-	(401,624)	(401,624)
Net return before taxation		(93,684)	(704,925)	(798,609)	60,599	232,396	292,995	136,111	326,930	463,041
Taxation		-	-	-	-	-	-	-	-	-
Net return after taxation		(93,684)	(704,925)	(798,609)	60,599	232,396	292,995	136,111	326,930	463,041
Return per 50p Ordinary Share
Basic and diluted	5	(2.59)p	(19.49)p	(22.08)p	1.67p	6.41p	8.08p	1.34p	9.03p	10.37p
Net asset value per 50p Ordinary Share				150.57p			246.05p			217.49
All the Company's operations are continuing.

Consolidated Statement of Recognised Income and Expense

For six months ended 30 September 2008

		6 months to 30 September 2008 (unaudited)			6 months to 30 September 2007 (unaudited, as restated)			Year to 31 March 2008 (audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
		£	£	£	£	£	£	£	£	£
Net return after taxation		(93,684)	(704,925)	(798,609)	60,599	232,396	292,995	136,111	326,930	463,041
Movement in unrealised appreciation of investments:
Recognised in equity		-	(361,875)	(361,875)	-	(342,860)	(342,860)	-	(608,948)	(608,948)
Recognised in profit or loss		-	(17,498)	(17,498)	-	(391,219)	(391,219)	-	(674,400)	(674,400)
Total net recognised (losses)/gains for the financial year		(93,684)	(1,084,298)	(1,177,982)	60,599	(501,683)	(441,084)	136,111	(956,418)	(820,307)

Consolidated Statement of Changes in Equity

For six months ended 30 September 2008

		Issued Capital	Share Premium	Own Shares Held	Capital Redemption Reserve	Revaluation Reserve	Capital Reserve	Revenue Account	Total
		£	£	£	£	£	£	£	£
Balance at 1 April 2008		1,808,728	1,019,246	(2,919,861)	685,250	1,140,477	4,316,244	579,346	6,629,430
Purchase of own shares		-	-	-	-	-	-	-	-
Movement in unrealised appreciation of investments
- recognised in equity		-	-	-	-	(361,875)	-	-	(361,875)
- recognised in profit or loss		-	-	-	-	(17,498)	-	-	(17,498)
Net increase in net assets from operations		-	-	-	-	-	(704,925)	(93,684)	(798,609)
Ordinary dividends paid		-	-	-	-	-	-	(93,370)	(93,370)
Participating element of preference dividends paid		-	-	-	-	-	-	-	-
Balance at 30 September 2008		1,808,728	1,019,246	(2,919,861)	685,250	761,104	3,611,319	392,292	5,358,078
Balance at 1 April 2007		1,818,728	1,019,246	(2,919,861)	675,250	2,423,825	3,989,314	746,995	7,753,497
Purchase of own shares		(10,000)	-	-	10,000	-	-	(45,361)	(45,361)
Movement in unrealised appreciation of investments
- recognised in equity		-	-	-	-	(342,860)	-	-	(342,860)
- recognised in profit or loss		-	-	-	-	(391,219)	-	-	(391,219)
Net increase in net assets from operations		-	-	-	-	-	232,396	60,599	292,995
Ordinary dividends paid		-	-	-	-	-	-	(94,995)	(94,995)
Participating element of preference dividends paid		-	-	-	-	-	-	-	-
Balance at 30 September 2007		1,808,728	1,019,246	(2,919,861)	685,250	1,689,746	4,221,710	667,238	7,172,057
Balance at 1 April 2007		1,818,728	1,019,246	(2,919,861)	675,250	2,423,825	3,989,314	746,995	7,753,497
Purchase of own shares		(10,000)	-	-	10,000	-	-	(45,361)	(45,361)
Movement in unrealised appreciation of investments
- recognised in equity		-	-	-	-	(608,948)	-	-	(608,948)
- recognised in profit or loss		-	-	-	-	(674,400)	-	-	(674,400)
Net increase in net assets from operations		-	-	-	-	-	326,930	136,111	463,041
Ordinary dividends paid		-	-	-	-	-	-	(170,990)	(170,990)
Participating element of preference dividends paid		-	-	-	-	-	-	(87,409)	(87,409)
Balance at 31 March 2008		1,808,728	1,019,246	(2,919,861)	685,250	1,140,477	4,316,244	579,346	6,629,430

Consolidated Balance Sheet

At 30 September 2008

		30 September 2008 (Unaudited)	30 September 2007 (Unaudited, as re-stated)	31 March 2008 (Audited)
		£	£	£
Investments
Investments at cost		12,163,009	12,691,592	11,742,240
Unrealised (depreciation)/appreciation		(2,001,142)	(202,153)	(892,400)
Portfolio investments at market value		10,161,867	12,489,439	10,849,840
Current assets
Trade and other receivables		43,119	155,082	49,859
Investments		143,796	147,260	195,026
Cash and bank balances		1,499,139	900,190	2,095,866
		1,686,054	1,202,532	2,340,751
Current liabilities
Preference dividends payable		174,818	174,818	174,818
Trade and other payables		160,618	190,689	231,936
		335,436	365,507	406,754
Net current assets		1,350,618	837,025	1,933,997
Non-current liabilities
5% loan notes maturing 2010 / 2015		(3,657,004)	(3,657,004)	(3,657,004)
Participating preference shares		(2,497,403)	(2,497,403)	(2,497,403)
Net assets		5,358,078	7,172,057	6,629,430
Capital and reserves
Issued capital		1,808,728	1,808,728	1,808,728
Share premium		1,019,246	1,019,246	1,019,246
Own shares held		(2,919,861)	(2,919,861)	(2,919,861)
Capital redemption reserve		685,250	685,250	685,250
Revaluation reserve		761,104	1,689,746	1,140,477
Capital reserve		3,611,319	4,221,710	4,316,244
Revenue reserves		392,292	667,238	579,346
Shareholders' funds		5,358,078	7,172,057	6,629,430
Net Asset Value per 50p Ordinary  share		150.57p	246.05p	217.49p

  Consolidated Cash Flow Statement

For the six months ended 30 September 2008

	Notes	6 months to 30 September 2008 (unaudited)	6 months to 30 September 2007 (unaudited)	Year to 31 March 2008 (audited)
		£	£	£
Cash flows from operating activities
Cash received from investments		336,742	403,061	890,432
Interest received		110,364	128,992	179,829
Cash paid to and on behalf of employees		(85,250)	(50,285)	(175,671)
Other cash payments		(188,977)	(111,335)	(124,148)
Net cash inflow from operating activities		172,879	370,433	770,442
Cash flows from financing activities
Loan note interest paid		(91,425)	(91,425)	(182,850)
Purchase of own shares	7	-	(45,361)	(45,361)
Fixed element of dividends paid on preference shares		(174,818)	(174,818)	(349,636)
Participating element of dividends paid on preference shares		-	-	(87,409)
Dividends paid on ordinary shares		(89,183)	(90,836)	(165,122)
Net cash outflow from financing activities		(355,426)	(402,440)	(830,378)
Cash flows from investing activities
Purchase of investments		(834,128)	(963,433)	(1047,201)
Sale of investments		419,948	1,430,072	2,737,455
Net cash (outflow)/inflow from investing activities		(414,180)	466,639	1,690,244
Net (decrease)/increase in cash and cash equivalents	8	(596,727)	434,632	1,630,308

Notes to the Interim Report

Financial information

The financial information above does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31st March 2008 have been delivered to the Registrar of Companies and contain an audit report in accordance with Section 285 which was unqualified.

The interim financial information has not been audited or reviewed by the Company's auditors.

Accounting policies

These financial statements have been prepared in accordance with International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) and in accordance with the Interpretations of International Accounting Standards issued by the Standing Interpretations Committee of the IASB. 

These financial statements have been prepared under the historical cost convention, except for Portfolio Investments which are stated at market value. 

Re-statement of September 2007 financial statements

In preparing the Group financial statements for the year to 31 March 2008, different accounting policies were applied from those previously used. This resulted in prior year adjustments and a re-statement of the comparative data to 31 March 2007. In preparing these interim financial statements, the comparative data to 30 September 2007 has likewise been re-stated. 

These prior year adjustments have no impact on net asset value per ordinary share as previously reported. 

The key aspects of these changes were:

(a) Profits and losses  (including impairment provisions) arising on non current asset investments were previously included in the Consolidated Statement of Recognised income and expense and recognised directly in equity.   Such realised profits and losses are now recognised in the Consolidated Income Statement. Such gains or losses continue to be transferred from profit and loss reserve to the capital reserve as a reserve movement, in accordance with the company's Articles of Association. 

(b) The participating preference shares were previously included as an equity instrument in the financial statements for the year ended 31 March 2007. The preference shares are now treated as compound financial instruments and the fixed element of preference dividends has been expensed in the Consolidated Income Statement.

These changes are described in more detail within the Company's Annual Report and Accounts for the year ended 31 March 2008.

Dividends payable

		6 months to 30 September 2008 (unaudited)	6 months to  30 September 2007 (unaudited, as restated)	6 months to 31 March 2008 (audited)
		£	£	£
Participating preference shares
Participating preference element		-	-	87,409
Ordinary shares
Prior year final		93,370	94,995	94,995
Current year interim		-	-	75,995
Total dividends		93,370	94,995	258,399

Return per ordinary share

	6 months to 30 September 2008 (unaudited)		6 months to  30 September 2007 (unaudited, as restated)		6 months to 31 March 2008 (audited)
Ordinary shares	3,617,456		3,624,599		3,621,018
	£	Per Share Pence	£	Per Share Pence	£	Per Share Pence
Revenue
Net (deficit)/return after taxation and participating  dividend	(93,684)	(2.59)	60,599	1.67	48,702	1.34
Capital
Net investment (losses)/gains  after taxation	(704,925)	(19.49)	232,396	6.41	326,930	9.03
Total	(798,609)	(22.08)	292,995	8.08	375,632	10.37
As the Company has no options or warrants in issue, basic and diluted loss per share are the same. Of the ordinary shares in issue, 1,717,565 shares are held by the company, are non-voting, and are excluded when calculating the adjusted return per share:
Adjusted return per share
Ordinary shares	1,899,891		1,907,034		1,903,453
Revenue
Net (deficit)/return after taxation and participating  dividend	(93,684)	(4.93)	60,599	3.18	48,702	2.56
Capital
Net investment (losses)/gains  after taxation	(704,925)	(37.10)	232,396	12.19	326,930	17.18
Total	(798,609)	(42.03)	292,995	15.36	375,632	19.73

Preference shares

The participating preference shares entitle the holders, in priority to the payment of any dividend to the holders of all or any other shares in the capital of the company, to a fixed net cash cumulative dividend at the rate of 7p per share per annum. In addition, holders are entitled to a participating dividend at the rate of 25% of any dividends paid on the Ordinary Shares in excess of 2p per share for any year, subject to a maximum participating dividend in respect of any year of 3p net per share. On any return of capital holders are entitled to the payment of a premium of 50p per share. 

Purchase of own shares

		6 months to 30 September 2008 (unaudited)	6 months to  30 September 2007 (unaudited, as restated)	6 months to 31 March 2008 (audited)
		£	£	£
Purchase of 20,000 ordinary shares of 50p each		-	45,361	45,361
		-	45,361	45,361

During the half year to 30 September 2008, the Company purchased 32,500 ordinary shares of 50p each for treasury at a cost of £52,424. At the interim period end they were still held. 

Analysis of net debt

		At 30 September 2008 (unaudited)	Cash flow (unaudited)	At 1 April 2008 (audited)
		£	£	£
Cash at bank		1,499,139	(596,727)	2,095,866
Long term debt		(3,657,004)	-	(3,657,004)
		(2,157,865)	596,727	(1,561,138)

Principal Risks and Uncertainties

The group's financial instruments comprise investments in fixed interest securities and prior charge investments, borrowings for investment purposes, cash balances and debtors and creditors that arise directly from its operations. Its principal risks are market price risk, interest rate risk and liquidity risk. Other risks faced by the Company include regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail within the Company's Annual Report and Accounts for the year ended 31 March 2008. The nature of the Company's principal risks and uncertainties has not changed materially since the date of that report.

 

END

 

 

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